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Bond error leaves Lowell large 'free cash' deficit

By Lyle Moran, lmoran@lowellsun.com

Updated:
08/20/2014 02:09:33 AM EDT

LOWELL -- The recently departed city treasurer failed to borrow $11 million to fund capital projects undertaken last fiscal year, which will result in the state initially certifying a substantial "free cash" deficit for the budget year ending June 30, city officials announced Tuesday night.

The officials did not say exactly what they expect the size of the free cash or budget deficit to be, but said they are hopeful it will be rectified at a later date by new borrowing producing a significant budget surplus.

Auditor Hannah York and City Financial Consultant Robert Healy told the City Council's finance subcommittee that the city finds itself in this predicament because Treasurer Elizabeth Craveiro did not issue bond-anticipation notes by June 30.

They are short-term notes issued in advance of larger bond issues that were supposed to cover the city's capital spending.

"We didn't overspend by $11 million, we just failed to issue the debt to cover it," York said of the capital spending.

York also said that lack of borrowing came even though the city's bond counsel sent Craveiro a letter in late February or early March outlining what needed to be done to issue the debt.

"As far as we can tell, it did not go any further than that," said York, highlighting that no one else was copied on the letter.

The auditor said in prior years the debt was typically borrowed in the spring.

City Manager Kevin Murphy recently forced Craveiro to retire, and her retirement became effective last Friday.

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Murphy is on vacation.

A voicemail left on a phone number listed for Craveiro in Middleton was not returned. Craveiro was hired by former City Manager Bernie Lynch, who stepped down in early March. Murphy took over in mid-April.

Mayor Rodney Elliott, the chair of the council's finance subcommittee, said he called the meeting because the free-cash issues were recently brought to his attention.

"It is really mismanagement on behalf of the treasurer," said Elliott, who said he was very troubled by the deficits.

The city is planning to use free cash to replenish a stabilization fund with $2 million transferred last fiscal year to address a school-spending shortfall under Lynch.

York said Craveiro failed to borrow $9 million for projects paid for by the city's general fund and another $2 million for capital work for the city's parking and water enterprise funds.

Chief Financial Officer Conor Baldwin said some of the general-fund projects that the city did not borrow funds for were the City Hall window project, paving work, sidewalk work, traffic-signal improvements, school building work and vehicle replacements.

The enterprise-fund project deficits stem from a lack of borrowing for new parking kiosks and several capital projects at the Water Utility, said York.

City officials said they have reached out to the state Department of Revenue to address the problem and are confident they will be able to do so.

The $2 million not borrowed for the water and parking projects will not affect the free-cash figure, which the state defines as "remaining, unrestricted funds from operations of the previous fiscal year."

Of the remaining $9 million the city must address, $1.4 million has already been borrowed, Healy said.

Healy, the former Cambridge city manager, also said a process is in place to issue bond-anticipation notes in early September to address the remaining deficit. At that point, the city can go back to the Department of Revenue and request an adjusted free-cash number, he said.

"It will be corrected," Healy said. "It will be a positive free-cash balance."

The officials also said they have taken steps to ensure the problem does not repeat itself.

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